Euro zone growth slowdown confirmed

By

Agencies

PublishedWednesday, April 09, 2008

Euro zone economic growth had a slower finish to a good year in 2007 as private consumption faltered, data showed on Wednesday, confirming global financial woes took their toll on the single currency area.

The European Union's statistics office confirmed its earlier estimate that gross domestic product in the then 13 countries using the euro rose 0.4 percent quarter-on-quarter in October to December, in line with market expectations.

The slowdown from 0.7 per cent growth in the third quarter resulted mainly from a contraction in household and government consumption, both down 0.1 per cent in the fourth quarter, versus growth of 0.5 and 0.6 per cent respectively in the prior quarter.

Eurostat confirmed that GDP rose 2.2 per cent in the fourth quarter compared with the same period of 2006.

"We expect the euro zone economy to experience a difficult year in the face of a weaker global economic environment, tight credit conditions and financial market turmoil, the very strong euro and elevated energy, commodity and food prices," said Howard Archer, chief economist at Global Insight.

Over the whole of 2007, the euro zone's economy expanded by 2.6 per cent, beating the United States and Japan, which grew by 2.2 per cent and 2.1 per cent, respectively.

Eurostat also revised up its year-on-year euro zone growth figure for last year's third quarter to 2.7 per cent from 2.6 per cent.

The data is unlikely to have any major impact on the European Central Bank, which on Thursday is expected to keep interest rates on hold at 4.0 per cent, despite slowing growth, due to worries over inflation.

"This is backward-looking data and will not have any impact whatsoever on the ECB. They confirm what we already know. The ECB is now looking at soft data coming in," said Gilles Moec, economist at Bank of America.

Eurostat confirmed exports remained positive in the fourth quarter -- their growth fell to 0.6 per cent quarter-on-quarter from 2.0 per cent in July-September -- despite a strong euro that is making foreign sales less profitable.

Growth was also fuelled by companies' investment, which increased by 0.8 per cent from the third quarter, compared with 1.1 per cent in July-September.

Expansion in smaller euro zone countries -- Austria, the Netherlands and Portugal -- was faster than in heavyweight France and Germany, whose GDP increased by 0.3 per cent quarter on quarter.

In the whole 27-nation European Union, growth came to 0.5 per cent versus the third quarter and 2.5 per cent compared with the last quarter of 2006, with the bloc's newcomers Slovakia, Poland and the Czech Republic enjoying robust expansion. (Reuters)